- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Early Mortgage Payoff and Calculation
It is the Big American dream to own a house, now not everyone is able to gather enough money to pay upfront and buy your dream house and we land up with mortgage loans to realize our dream.
Over a period of time instead of cherishing the home, we get burdened by the mortgage payments.
Here in this article we will learn all about early mortgage payoff, and proven effective ways for early payoff as the mortgage payments appear as if they never go away!
You can actually pay down your mortgage pretty quickly.
Let us first talk about some different strategies and how can you find extra money for early mortgage payoff, so one thing we need to know is that there is no magic solution, we took out debt and that debt has to be paid back it is as simple as that.
There aren’t any tricks and strategies to get rid of the debt and make it disappear without paying for it.
We need to be proactive in figuring out how we are going to pay it down so there are two steps of early payoff.
Step 1
- We need to budget, find the extra money each month that can be put into the mortgage payment. To find extra money so you might be defined budget.
- Not just an expense report, but categories the monthly expense and identity how much money can I save by individual segregation on food, entertainment, travel, etc. So instead of forecasting your income, you are budgeting the money that you have so it helps to figure out the extra money that you have and observe where you are spending too much because you now have categorized every single thing.
- Consult your budget before spending so you know where everything is going beforehand. So we can find where is the extra money that is slipping through the crack in our budget and make an early payoff.
Step 2
- We can use different strategies to pay down the mortgage a little bit faster than we were before. Some of the most common ways for early mortgage payoff –
- Suppose you have lump-sum money of $10,000 from a tax refund or gift or inheritance you can put all this in paying the principal so you would bring the amount down.
- The next option for mortgage payoff is bi-weekly payments one extra payment a year so you end up paying 26 payments per year instead of 24 so you have the benefit of one extra mortgage payment per year so one extra payment gets added into paying off your loan, so if you did bi-weekly on a $150,000 loan over 30 years it will save you $17,000 and 5 years off your loan. This way you will save a good amount of money and doesn’t really cost that much, and you get a good amount of savings.
- Then another way is simply paying extra money each month, though it sounds simple it works the best. It is simply putting extra money every single month on the principal of your mortgage. E.g. If you spend $5 every day on a coffee ad you save that it would come to $150 a month towards the principal and so it actually saves us about 8 years and almost $34,000 for the entire tenure with just a $150 a month!
- The last option is to refinance to a lower rate so the lower the rate, the more payment gets paid towards principal accelerating your payment. One very important thing to remember in refinance is you don’t take closing costs and wrap them into the loan because it would increase the principal cost. Also, make sure when you refinance to a lower rate, suppose you have a 30-year loan and you are 2 years into paying it so you have 28 years left don’t refinance into another 30 years loan because you just will re-stretch that debt and additional 2 years!
So watch out for a prepayment penalty so when you set up your loan in the very beginning you first got it on your loan estimate, your closing disclosure where it will specify if you have a prepayment penalty for an early payoff.
If you have portfolio loans or other unconventional loans they might have a penalty so you need to watch out.
See what the penalty is and see if it makes sense for you to pay off your mortgage or if these have a time limit that you need to wait. Weigh the pros and cons while paying money into a mortgage.
Don’t take all your money and keep throwing it into the mortgage every single month if it is going to be right for you, set aside some emergency funds.
It doesn’t necessarily need to be a financial decision always sometimes it could be an emotional decision too.
Sometimes it is good to not be leveraged and be able to work at peace instead of working yourself up. So this should give you some ideas to have an early mortgage payoff.
I wanted to thank you for this great read!! I definitely enjoying every little bit of it I have you bookmarked to check out new stuff you post…